Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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son. T e restaurant group is looking for multiple locations in that market, and may open as many as 10 new locations in central and northern Alabama over the next fi ve years. Entrepreneurial growth is driving retail activity in areas such as the Rio Grande Valley in Texas. Operators that have a fran- chise or license agreement with brands such as Domino's, Cash America Pawn, and T Mobile are looking for space. "We're still having a hard time getting out leases that need a fi nish-out allowance, because every- body is still cash poor," says Cindy Hopkins, an independent broker and owner of HCRE in Harlingen, Texas. "But I think franchi- sees have a more active outlook and want to make things happen in 2012." Activity is coming from the mom and pops who have either retired or been laid off and now want to open up a store, agrees Gleason, who serves clients in the secondary and tertiary markets outside of Seattle. "A lot of these new entrepreneurs are going into older, second- or third- generation space in smaller downtowns on short-term leases and having success with it," Gleason adds. Backfi lling Empty Space Across the country, many markets are still working to backfi ll vacancies leſt when large category killers such as Borders, Circuit City, and Linens N T ings closed hundreds of stores. In addition, many cities have been hit by the loss of local and regional players. For example, Bruno's Supermarkets closed more than 60 Bruno's and Food World stores across Alabama and Florida. Empty big-box space has created attrac- tive opportunities for retailers that are jockeying for position in top markets. T e greater San Francisco Bay Area has virtu- ally no big-box vacancy, as new retailers entering the market have snapped up space. Sprouts Farmers Markets, Fresh & Easy, and Hobby Lobby — "those retailers have stepped up very aggressively and picked up some of the vacant space," Englehardt says. Fitness centers also have been expanding CCIM.com APPETITE FOR "A" PROPERTIES Buyers may not be venturing too far out on the risk spectrum. Yet the rise in sales volume over the past year is an added vote of confi dence in the retail market recovery. Investors continue to favor "best in class" retail properties. Grocery- anchored centers and "A" credit single-tenant properties such as Walgreens are widely sought after. "Those single-tenant deals are very much in demand. There is much more demand than there is supply right now," says Jason Donald, director of retail brokerage services at Cushman & Wakefi eld of Florida, in Tampa, Fla. Despite a third-quarter pullback in buying activity, retail property sales totaled $42.4 billion in 2011 — a 91 percent increase in volume over the prior year, according to New York–based Real Capital Analytics, the largest gain of all the property sectors. Major metros continue to generate the most transactions; the top fi ve most active markets by volume for retail sales include Manhattan, Los Angeles, Boston, Chicago, and Atlanta Investment continues to trickle down to secondary markets such as . Charlotte, N.C., Nashville, Tenn., St. Louis, Atlanta, Birmingham, Ala., and Tampa. "Capital has started to fi nd its way into these smaller markets, be - cause what you would pay for one property in New York, you can potentially capture two or maybe three properties in the Southeast," Donald says. For example, Cushman & Wakefi eld is working with a private buyer based in Manhattan that is selling off some existing properties and reinvesting that money in Florida, because he feels that the market has hit bottom and there is some upside. "Like most, he is looking for a deal," Donald says. The buyer is looking at single-tenant and multitenant properties, as long as the amount of small shop space is not greater than the anchor tenant. "The retail market does offer plenty of opportunities for today's investors, particularly if the buyer has a tenant in tow or excellent tenant relationships and has the horsepower to hold, market and re-fi t, and lease," agrees Tom Hill III, CCIM, owner of Tom Hill Realty & Investment in Waterbury, Conn. Grocery-anchored or national pharmacies such as CVS and Walgreens are generating low capitalization rates of 6.0 percent to 7.5 percent, while non-anchored centers are seeing cap rates upward of 10 percent and are not moving quickly. "There are lots of bargains, but you need all cash to get one, and many buyers with cash want huge discounts due to the re-leasing risk," Hill adds. in northern California. Engelhardt repre- sents Safeway, which has closed a number of its stores as the chain consolidated. Brands such as LA Fitness and 24 Hour Fitness have been very interested in leasing those spaces, which typically span about 28,000 sf. Other markets have seen creative re-use of vacant big-box spaces. For example, one opportunistic local investor in Alabama converted a more than 40,000-sf Bruno's Supermarket into a climate-controlled self- storage facility. T at investor is looking at May | June | 2012 29